Finally, no sound patent policy supports patent protection for non-technological processes, including non-technological business methods. Patent-based incentives are simply not needed to spur business method innovation. To the contrary, allowing non-technological business methods to be patented would only stifle competition without promoting innovation.

Even Microsoft filed a brief [PDF], along with Dell and Symantec, and they too are worried at the thought of such a patent as Bilski is trying to get:

Amici both own process patents and are frequently defendants in suits alleging infringement of such patents owned by others. They thus have a profound interest in the standard that governs whether such patents claim patent-eligible subject matter. They also have an interest in the patent system as a whole and in the harm done to that system by the issuance of patents that claim nothing more than abstract concepts. By requiring that process inventions, like machines, manufactures, and compositions of matter, must be physical in nature and must produce a result that has specific practical utility -- a result that is, in this Court's words, "useful, concrete and tangible" -- this Court can restore proper balance to the system and provide guidance to the courts, the PTO, the bar, and the public.

Introduction

The Bilski patent application claims a process -- specifically, "a method for managing the consumption of risk costs of a commodity." The claimed process neither requires the use of a machine or other apparatus, nor effects a transformation of physical subject matter into a different state or thing. The claimed process is, however, arguably useful, with practical, real-world applications. The question before the Court, then, is whether such a process, unbounded by any physical limitations but with practical utility is a patentable process within the meaning of 35 U.S.C. Section 101.

Interesting, huh? I think all Linux penguins should file those words away under their legal feathers, to be brought out on some future rainy day.

PTO’s decision will be affirmed by shaping the facts (e.g., by calling the invention an abstract idea).

State Street will not be overruled.

The court will not implement a “machine test.”

By affirmed, he means that the USPTO refused to grant a business method patent (the Board of Patents and Interferences' decision {PDF]), and he believes the appeals court will affirm that refusal. But Red Hat raised the issue of software patents hindering innovation, particularly for Free and Open Source software creators. Here's another account of how the arguments went, by Gene Quinn on the Practising Law Institute's website.

Update 2: Other reports on the day's events are in now. Here's one from PIJIP, the American University Washington College of Law's Program on Information Justice and Intellectual Property:

The different judges of the en banc Court were looking for guidance on how to establish clear rules or standards that were readily applied to distinguish between patent eligible and patent ineligible inventions. Their questions focused principally on whether the Supreme Court in Diamond v. Diehr, 450 U.S. 175 (1981), established binding limits on patent eligibility or only provided guidance on things that clearly are patentable, when it said: “Transformation and reduction of an article ‘to a different state or thing’ is the clue to the patentability of a process claim that does not include particular machines.” Id. at 184 (quoting Gottschalk v. Benson, 409 U.S. 63, 70 (1972)). Many of the questions explored what kinds of transformations make a process patent eligible – in particular, whether processes are eligible if they merely transform data (or the form or state of information), or if they change only extrinsic properties (but not the intrinsic nature) of an article or composition of matter (such as a new method of curving a baseball). The judges also asked: whether Section 101 eligibility analysis is needed or whether Sections 102, 103, and 112 analysis is preferable; how the Section 101 analysis relates to the other sections; and what authority the court had to adopt or extend eligibility limits. Some of the judges appeared concerned with any standard that would threaten eligibility of many or most software inventions. Judge Newman articulated the policy concern that Section 101 should be construed broadly to assure that the patents were available for new technologies. No judge or counsel articulated any strong policy reason for limiting patent eligibility – such as preserving a public domain of science by preventing patents on trivial or limited applications thereof, as argued in an amicus brief I filed on behalf of ten law professors. All of the judges appeared to accept that the Supreme Court precedent prohibits patents for laws of nature, natural materials, and abstract ideas (except perhaps Judge Rader, who pushed the PTO counsel to explain why an invention that qualified as a process – understood as a series of steps – should be excluded); some of the judges’ questions explored whether the transformation test – or what other considerations – defined the difference between ineligible abstract ideas and patentable processes. Finally, some of the judges expressed skepticism that use of a computer (rather than pencil and paper) converts a process based on a mental step into a patentable invention.

The parties counsel and counsel for the different financial services companies who had filed amicus briefs kept their arguments closely tied to the positions in their briefs. John Duffy, arguing for amicus Regulatory Datacorp, Inc., argued against the “factor” test proposed by William Lee and Seth Waxman (the former Solicitor General) on behalf of the Bank of America Corp., Metropolitan Life, the Financial Services Roundtable, and other financial services companies. Duffy argued that there is no “per se” rule of ineligibility because the nature of technology may change, and that eligible transformations may include transformation of intangible things having practical significance. But he also noted that Section 101 threshold analysis is required by binding precedent and incorporates considerations that are similar to those applied by other statutory sections, including the breadth of the claims (which also is considered under Section 112 for written description and enablement). William Lee argued against the position of Judge Dyk in In re Comiskey, 499 F.3d 1365 (Fed. Cir. 2007), that a claim that practically required or explicitly required use of a machine was sufficient to demonstrate patent eligibility, given the statement in Diehr that “insignificant post-solution activity will not transform an unpatentable principle into a patentable process. To hold otherwise would allow a competent draftsman to evade the recognized limitations on the type of subject matter eligible for patent protection.” 450 U.S. at 191-92. Lee also argued that the machine claim in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), also reflected insignificant post-solution activity and its holding should be repudiated, but (if I heard correctly) he also argued that the rasterized information display in In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994) (en banc) was patent eligible as a sufficient transformation.

We have webster's eyewitness report, with his own special sauce, as is his wont. And you can listen to the arguments for yourself. Go to this page to search for oral argument before the US Court of Appeals for the Federal Circuit. If you search for keyword Bilski in the top box, marked Caption, you will get three links, the first being the earlier October 2007 hearing, and the second two links the May 8 hearing divided into two parts.) When you hear them discussing Section 101, this is what they mean, 35 U.S.C. 101: Patentable Subject Matter. And they mention the recent Comiskey decision, so here it is [PDF], so you will know what they are talking about. Also, here's the other case they mention, Microsoft v. AT&T [PDF], which Groklaw has done as text.

I'm about half way through the mp3, and it's so amusing to hear the silences that follow fundamental questions about where the line should be drawn. How about curve balls? Chiropractic services? Number crunching? The questions alone inform me that the line is waaaaaay over any logical or rational line, and that is why at least two lawyers say they'd have to think about a judge's question. The problem, as I see it, is that the patent office went too far, and while each incremental step seemed to make sense to them as they went along, now they can't answer the big picture questions. Like drifting in a row boat, where the current takes you far, far away from where you meant to be without you quite realizing it. Here's a question: what happens to innovation if you allow pure thoughts to be patented? How do you enforce thought laws? It's a riot, but also a bit sad to me to hear the USPTO's representative answer the many questions.

Here's webster's report just for us:

*********************************

Part One: Getting There, Nothing about Patents

With decades of experience in the local and federal courts of the three adjunct
jurisdictions from traffic court to the courts of appeals, Counsel could not
find the Markey Courthouse, home of the Circuit Court for the Federal Circuit of
the District of Columbia. Google showed two 717 Madisons in NW DC. One
appeared to be near the Ellipse which is near the White House, rarified air for
this local lawyer. It was a good day to play hooky with the local courts in
conference and a couple colleagues to cover in the “community court.”

The decision was made for him with an invitation from a colleague to walk that
way for lunch at the carry-out run out the back of the Old Ebbitt Grill, a
venerable institution. After lunch counsel wandered around the Department of
Commerce for twelve blocks looking for John Madison Place, counsel was finally
directed back around the corner of the Old Ebbitt. No matter, he was plenty
early even for the most momentous argument in recent memory at least for the
U.S. patent world. Counsel walked by Pennsylvania Avenue a block east from the
White House. It is closed to traffic with barriers and cobblestones. This is
so that truck bombs can’t get too close to the White House. Counsel once had a
client arrested for driving by this spot in a pick-up with a shotgun in the
rack. There weren’t many places he could go without thinking of a crime.

The courthouse had a magnificent setting right on Lafayette Square. It also
had a long 40-yard line outside. Counsel approached the guard from the US
Marshal service and asked if he could go in immediately with his [Local] Court
ID. “No.” When asked for room 201, the marshal gave directions and added
“That’s were the action is.” So he got in line hoping there would be room.
Forty minutes before the hearing and there was already a long line. Inside at
the security Counsel had a better welcome. One of the Marshals greeted him with
familiarity. Too bad he wasn’t outside. He had been at the local court some
years ago, an old familiar face.

The courtroom was a surprise and worthy of its special status. It was large
with the familiar wooden benches, but they were cushioned. They were really
full. Counsel found a seat on the side, also cushioned. There were dark suits,
dark wood, dark carpets, and many greyheads. There were twelve cushioned chairs
facing the room from behind the bench with bronze plaques that would be readable
by those arguing only. Two black clerks in tailored suits brought icewater to
various seats. This was clearly a big day.

This is not counsel’s field. He had not prepared. He asked his bench partner
who would argue first, the patent holder or the challenger. He explained the
issues but said he didn’t know who would go first. The gavel sounded.

The justices came out from behind on both sides like curtains sweeping closed.
The chief judge would sit in the middle with the rest seated presumptively by
order of seniority on this bench. The Chief Judge then commenced the somber
proceeding by twice repeating the cell phone incantation. The very same warning
the bailiff had been repeating prior to his entrance. Fortunately this day,
their prayers were answered.

Part Two – The Hearing

The Chief Judge announced that each side would get thirty minutes, then ten for
an amicus and ten for rebuttal.

Foreword: A Mr. David Hanson (of the Webb Law Firm) began the arguments for the Appellant (Bilski). Surely he was
well-prepared and had a ready grasp of the leading cases, but neither he or any
other speaker would stand up to the barrage of questions by this Court. The
number of Judges asking questions and the number of questions were truly
extraordinary. Of course getting 12 justices to organize and order their
questions is worse than herding cats, but they know the issues. Not two minutes
into the opening argument, the Judges began interrupting the speaker with very
pointed questions. The questions reflected a discussion, one clearly had
amongst the judges, but also among the courts, congress and society. It was
almost like deliberating with the court itself. They were very open with their
articulate observations and their cry for help in search of a standard. The
parties had difficulty with the courts blunt approach. They have special
interests and wouldn’t respond with a simple standard or recommendation. The
Court doesn’t know and seeks guidance. The judicial precedents are not clear
and the statute is not clear. As one justice put it “We need a standard for the
patent examiner. We can’t decide every patent that comes along.” The hearing
was much more a judicial presentation rather than a presentation by any of the
parties. The judicial inquiry completely overwhelmed the hearing.

Mr. Hanson was arguing for the approval of the Bilski patent which was a way of
“enabling the sale of a commodity taking into consideration the supply and the
weather rather than just the price.” He felt it was wrong for the patent office
to deny this patent as simply covering the abstract idea of hedging. Judges 1,
2, and 6 asked the first questions in the first five minutes. They agreed that
mere ideas and abstractions were not patentable, but Mr. Hanson argued that
communication and the transformation of data by a process was patentable.

They discussed the terms of Section 101 patentability. Tangible and concrete
were problematic. Concrete, tangible and useful are the antithesis of abstract.
Totally mental is not patentable. Hanson’s answer was that real world
communications and third party activity was tangible and a transformation.

Transformation was discussed at length. The Transformation test supported
patentability. It is concrete and tangible. Something changes. At the same
time, Hanson did not want transformation used as a test that would exclude
patentability. Just because something was not physically transformed did not
mean that it should not be patented.

The Chief Judge then inquired about “specificity” as a concept that would help
in applying section 101. This interested two female judges on the far right, 11
and 12. “Transformation is sufficient but not necessary” for a patent. 12.
Judge 11 suggesting building on specificity and examining eligibility under
sections 101, 102, and 112, but noted that the broader a claim is the more
likely it is to be abstract. Therefore specifics keep the claim from being
abstract.

Hanson noted that there are books on hedging but just on the price. They were
not focused on the consumption risk, apparently the grounds for his precious
patent.

Then the Chief Judge chimes in “How much more than something in the mind does
the patent have to be? We need help?” Hanson suggested the answer, “It can’t be
trivial.”
Judge 5 joined the fray. Patents are for concrete results. On one side there
is abstract ideas and items found in nature and on the other tangible and
concrete claims. “What is in between? Is there a long space in between? Are
we pushing policy? Where do we draw the bright line?”

Hanson answered pushing his patent. “Information shouldn’t have a special rule.
If there is activity that generates a fixed price to the consumer there is
transformation. Poor Hanson. He was there to argue one patent that was
rejected. He was hit by the philosophical and statutory dilemmas of the nation.
They couldn’t see his tree for the forest.

Next up was Professor John Duffy on behalf of Regulatory Datacorp, one of the amici. [PJ: Here is his amici brief. He was one of those who filed an amicus brief who was asked to attend and present oral argument. The second was the "Financial Services Industry", representing the Bank of America, Lehman Brothers, Morgan Stanley, Wachovia, et al. Here's their brief [PDF]. They address the trick of adding "on a computer" to make something patentable, and they argue that State Street should be overruled.] He seemed to be for patentability too. Judge 2 didn’t
even let him get started. The judge noted that abstract ideas are excluded from
patentable material. Nor is natural or physical phenomenon patentable. Duffy urged
caution. Beware of the per se rules. The Supreme Court says that
transformation is a clue. Duffy noted that transformation is a factor but not a
per se test. It had to be transformation of subject matter.

The Chief Judge jumped back into it. The Supreme Court has declared that there
are certain “No No’s’ [sic] in this area. “Can we create an additional ‘No No’ or
should we wait for the Supreme Court?” Mr. Duffy’s answer was that the court
had the authority to clarify. Deferential if not helpful.

Mr. Duffy added that the court must follow the intent of Congress and that was
to be broad-minded. It was the intent of congress to be amorphous and stay away
from per se rules. He introduced the phrase “Financial Engineering,” which
certainly has the ring of process and steel to it.

Raymond Chen then stood for the United States Patent Office. Their position was
that this was not a good case for this issue. He didn’t help the judges any
either. In fact he called for a decision but not in this case. He said that a
transformation is a clue that a process is patentable. It doesn’t have to be
tied to an apparatus.

“Doesn’t a computer just make mental steps?” boomed in one judge. “Are you
asking us to overrule State Street?” The judges were really looking for insight
and guidance. They had been over these matters with little success among
themselves, I gather.

Judge 4 in the clearest metaphor heretofore: “I do taxes by computer. I use to
do it by thinking." State Street indicates that the transformation of data
becomes useful.
The Chief Judge noted point blank that the United States did not ask in this
case that State Street be overturned. He asked Mr. Chen’s view of State Street.
Mr. Chen said that this was not the case to revisit State Street because the
Bilski patent did not have a computer. Section 101 was sufficient since it was
just useful steps to be taken.

Judge 5 then noted by question that they were trying to legislate innovation
which is beyond their power, says the Supreme Court. It is policy. Mr. Chen
noted that Section 101 has been reaffirmed already. Patents should be broad to
accommodate new technology.

Judge 12 asked about all software patents. She noted that software without a
machine has issues. Mr. Chen than urged the court not to put software patents
in this case as the media has. The facts are bad.

Judge 11 then offered the example of a “chiropractic back adjustment” for
patentability. Is this a method, a process that achieves transformation?

Then the crowning metaphor was introduced by another Judge. “Is a curve ball
patentable?” If you transform a baseball into a green pea, that would be
patentable. Is the process of throwing a curve ball patentable?

Mr. Chen then argued that this case was about contract formation, an intangible.
The judges then started a discussion about statutory construction. Does
Section 101 stand alone or can one turn to sections 102, 103 and 112 to
reference patentability?

Mr. Chen was a reluctant respondent. Officially this was not the case the
patent office wanted for the questions they received. When asked if one could
get a patent for a process tied to a computer, he gave a very unreassuring
“probably yes” -- that there was a transformation of the information process.
Judge 10 said something about the invention of the patent office.

Mr. Lee for the Amicus spoke next. He represented financial institutions with a
significant interest, who thanked the court for letting him participate. He
actually did get into proposing a factor test for the court. Before he could
get through it, he was siding against patenting the process of throwing a
curve ball.

A judge then asked how could there be a test for a section 101 patent using
section 103? Mr. Lee said they overlap. The judges flocked back to the
“computer is just mental” discussion, and Mr. Lee rested.

Mr. Hanson had the last word. He had had time to think. Without a barrage of
questions, he had come up with the expression to save his patent. He asked the
court to think of "information as physical." It is therefore tangible and can
be transformed. Probably just like a baseball to a pea. The hearing
adjourned.

Update:
Groklaw member RFD went to the hearing also, and here is his impression of the event:

*********************************

I also attended the hearing yesterday and thought I might offer a few
observations, but I will not attempt to compete with Webster. I arrived
at the courthouse about noon (for a 2:00 pm hearing) with the intention
of going to get something to eat after I was sure where the courthouse
was located. I was shocked to find a very long line waiting outside.
Fortunately the line was under cover since it was raining. I did not
expect to get in, but I decided to wait and see -- I also skipped lunch.
An hour and fifteen minutes latter, the security people started letting
people in, and much to my surprise, I found a seat near the front.

While waiting in line I chatted with two patent attorneys -- one who was
with the trade association that was given argument time and one who
represented the plaintiffs in the Blackberry case. They both supported
Bilski. During the hearing I sat next to a patent examiner from the
USPTO.

En bank hearings in this court are rare, and one that attracts this many
attendees is even rarer, although not unprecedented. What may be
unprecedented are the 30 amicus briefs.

In general, I was underwhelmed by the oral arguments and the lack of
substance in those presentations and in the answers or (most of the
time) the non-answers to the many pointed questions the judges asked.
Clearly the judges were much better prepared for this hearing than the
parties. Perhaps the most significant outcome of the hearing may be
that the parties and amici were unable (or unwilling) to address the issue of what is
and is not patentable. As Webster noted, the second amicus presentation
was the one exception.

Hopefully, some of the 30 amicus briefs will help the court in deciding
this case. The court seems to view this as an important case, and the
30 amicus briefs, and the large attendance should reinforce that view.